Negative impacts of India-ASEAN FTA

The signing of ASEAN FTA has raised many objections from various parts of India. Through the tariff free trade, which comes into effect by the FTA will be a blow to the Indian agriculture and fisheries sector. This was the reason to argue upon the negative list by the two parties. The negotiations later led to the shortening of the negative list which place a number of India’s cash crops on normal track of import.

The FTA will be a blow to planters and farmers from South India since ASEAN countries has comparative advantage in the production of certain agricultural crops. ASEAN countries are featured with similar climate and geographical features with similar crops that of South Indian states, especially Kerala and Tamilnadu. Moreover ASEAN countries are having advantage in the production of crops like rubber, tea, coffee, pepper, etc. which are the main crops of these south Indian states. These products are characterized by high productivity and low cost of production in ASEAN countries. This can be improved in future with their current resources itself, due to low density of population and fertile land. Indian producers now itself face problem of high cost of production, low productivity, low prices and lack of cultivatable land due to high density of population. Tariff free trade help ASEAN products to enter Indian market, where domestic products will be unable to compete with. This will lead to a decline in agricultural production and dependence on imports.

Instead of protecting the key products by putting them on the negative list, India has agreed those to be on the special list of five products. The items on this list will have 50% tariff cut by 2018. The temporary protection will not be helpful for Indian products to recover from production disparities. 50% tariff cut is a very good advantage to ASEAN countries.

Palm oil is also not in protective list. Malaysia is having a high palm oil production and it is one of the major exporters of palm oil. Import of low cost palm oil will affect the market of sunflower oil and coconut oil and thereby coconut and sunflower market in India. These products constitute major part of crops in the southern states.

Fish and fish products are another major good which ASEAN has a good advantage. They are characterized by high availability of fish due to natural features. The involvement of fish and fish products in the trade pact is in complicated way in which they spread over normal track and negative list, leaving several loop holes. The import of such products may affect the domestic market featured with seasonal variations of availability.

Even though rubber is included in the negative list, several rubber products are on the normal track which will help the rubber industries of ASEAN countries to export to India.

The negative list items don’t guarantee any protection from tariff cut. Each year the items on the list will be reviewed. If in one year the production of an item in the list is reduced in one sector the product will go to normal list. This may affect products like fisheries which have natural variations in availability.

ASEAN’s import from India is only 2.1% of its total import, while 3.4% of their export is to India. In 2006-’07 total exports from India to ASEAN increased by 21 % only while import increased by 66% ,i.e., growth in import is three times larger than exports. Trade deficit has increased from 0.5 billion US$ in 2002-‘03 to 7 billion US$ by 2009 Aug. After tariff cut this deficit may increase.

India-ASEAN FTA-How far it is gainful?

India and Association of South East Asian Nations (ASEAN) had signed a free Trade Agreement on 2009 August 13 in the meeting of ASEAN-India Economic Ministers held in Bangkok, Thailand. Both parties signed the pact on trade in goods under the Comprehensive Economic Cooperation Agreement (CECA). The CECA was signed in 2003 in recognizing the economic potential for close linkages between the two parties. Through the treaty the parties had agreed to enter into negotiations in order to establish an ASEAN-India Regional Trade and Investment Area (RTIA), which includes a Free Trade Area (FTA) in goods, services and investment, and to strengthen and enhance economic cooperation.

This treaty has been framed after years long negotiations and discussions started after the First India-ASEAN summit in 2002. The setting up of a FTA aims at tariff free trade between the trade bloc and India. This trade agreement has taken effect from January 1, 2010 onwards. One of the important trade treaties signed by India so far, this treaty aimed at the regional cooperation between the two important growing economic powers of Asia. But, In India the signing of the agreement has gained wide protest from various parts of the country. So the treaty has been widely discussed following the framing of agreement. Certain sources have claimed that the free trade which would be established would be having a negative effect over the country’s domestic market.

The volume of trade between India and ASEAN countries has shown considerable growth since 2000. The total trade volume has increased from 7 billion US dollars during 2000-’01 to 45.3 billion US dollars during 2008-’09. The signing up of the framework agreement was helpful for this increase. By the end of 2010 the total trade volume is targeted to reach 50 billion US dollars. The signing up of a free trade agreement will break the barriers of trade and will help to increase the volume of trade between two blocks. This will constitute to the development of the region.

Agreement on export of services sector will be gainful to India. India currently ranks 9^th in export of services globally and ASEAN countries is a net importer of the same. This advantage will help to gain more market and eventually contribute more to the GDP. Another important field India has advantage is the Investment sector. Indian companies seek direct investment in the ASEAN countries through the agreement. Currently Singapore is one of the top destinations for Indian overseas investment. The secure environment and economic developments in some countries are motivating factor for investment. The top Indian companies are aiming to invest in IT, infrastructure, banking, automotives, and mining and real estate sectors of ASEAN countries mainly in Singapore, Malaysia, Thailand and Indonesia. Through the agreement Indian investors can seek more opportunities in Philippines, Cambodia, Laos and Vietnam which has shown considerable growth in development. Indian products of machinery and machine parts, steel and steel products, Certain Agricultural products like wheat, oil cake and meat, chemicals and textiles would gain additional market access as a result of tariff liberalization.

Currently India is having good trade relations with Singapore, Malaysia and Indonesia only. A major chunk of India’s trade with ASEAN is to these countries. Singapore is heading with 32 % of total trade while Indonesia (27%) and Malaysia (18%) follow. By the FTA, India can increase the trade with other seven countries of ASEAN.